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Difference Between Controllable and Uncontrollable Cost

Cost control and management is the most important aspect of business management in terms of business survival and profitability. The process of cost control starts by evaluating costs based on a necessity need as well as relevance. In a business, costs are unavoidable. However, a business can prioritize based on controllable and uncontrollable costs involved in the day to day running of a business. Business owners, as well as managers should differentiate between controllable and uncontrollable costs for efficient management and cost monitoring.

 

What is Controllable Cost?

This is a cost that can be altered based on a business decision or need. These costs have a direct relationship with a product, department or function. Examples include direct labor, direct materials, donations, training costs, bonuses, subscriptions and sues, and overhead costs just to name a few.

 

What is Uncontrollable Costs?

This is a cost that cannot be altered based on a personal business decision or need. The costs are allocated by the top management to several departments or branches. Examples include depreciation, insurance, administrative overhead allocated and rent allocated just to name a few.

 

Similarities between Controllable and Uncontrollable Cost

  • Both are relevant costs in a business

 

Differences between Controllable and Uncontrollable Cost

Definition

Controllable cost refers to a cost that can be altered based on a business decision or need. On the other hand, uncontrollable cost refers to a cost that cannot be altered based on a personal business decision or need.

Time Span

While controllable costs can be altered in the short run, uncontrollable costs can be altered in the long run.

Examples

An example of controllable cost includes direct labor, direct materials, donations, training costs, bonuses, subscriptions and sues, and overhead costs. On the other hand, an example of uncontrollable costs includes depreciation, insurance, administrative overhead allocated and rent allocated.

Controllable vs. Uncontrollable Cost: Comparison Table

 

Summary of Controllable vs. Uncontrollable Cost

Costs in businesses are inevitable. Failure to manage the costs, however, can be detrimental for a business. It is hence important for business owners and employees to differentiate between controllable and uncontrollable costs, which enable them to make sound business decisions.

 

Tabitha Njogu

Tabitha graduated from Jomo Kenyatta University of Agriculture and Technology with a Bachelor’s Degree in Commerce, whereby she specialized in Finance. She has had the pleasure of working with various organizations and garnered expertise in business management, business administration, accounting, finance operations, and digital marketing.

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References :


[0]Image credit: https://www.flickr.com/photos/vuhung/8245764601

[1]Image credit: https://commons.wikimedia.org/wiki/File:Monitoring_and_Controlling_Process_Group_Processes.jpg

[2]Rajasekaran V. Cost Accounting. Pearson Education India, 2010. https://books.google.co.ke/books?id=zHS1CLAS-PoC&pg=PA12&dq=Difference+between+Controllable+and+Uncontrollable+Cost&hl=en&sa=X&ved=0ahUKEwjI4eGnnYXjAhUhxYUKHTqeDvcQ6AEIKDAA#v=onepage&q=Difference%20between%20Controllable%20and%20Uncontrollable%20Cost&f=false

[3]Fresh Perspectives:Cost and Management Accounting. Pearson South Africa, 2007. https://books.google.co.ke/books?id=1WunhfADmBgC&pg=PA39&dq=Difference+between+Controllable+and+Uncontrollable+Cost&hl=en&sa=X&ved=0ahUKEwjI4eGnnYXjAhUhxYUKHTqeDvcQ6AEILjAB#v=onepage&q=Difference%20between%20Controllable%20and%20Uncontrollable%20Cost&f=false

[4]Maheshwari S. A Textbook of Accounting for Management, 3rd Editionn. Vikas Publishing House, 2012. https://books.google.co.ke/books?id=pz5DDAAAQBAJ&pg=SA2-PA46&dq=Difference+between+Controllable+and+Uncontrollable+Cost&hl=en&sa=X&ved=0ahUKEwjI4eGnnYXjAhUhxYUKHTqeDvcQ6AEINzAD#v=onepage&q=Difference%20between%20Controllable%20and%20Uncontrollable%20Cost&f=false

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